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Public debt in a basic endogenous growth model

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  • Greiner, Alfred
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    Abstract

    We work out the mechanism that makes public debt affect the allocation of resources in the long-run. To do so we analyze an AK growth model with elastic labor supply and a government sector. The government levies a distortionary income tax and issues bonds to finance lump-sum transfers and non-distortionary public spending. We show that the long-run growth rate is the smaller the higher the debt ratio if the government adjusts public spending to fulfill its inter-temporal budget constraint. If the government adjusts lump-sum transfers the public debt ratio does not affect the balanced growth rate.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 29 (2012)
    Issue (Month): 4 ()
    Pages: 1344-1348

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    Handle: RePEc:eee:ecmode:v:29:y:2012:i:4:p:1344-1348

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Government debt; Inter-temporal budget constraint; Public spending; Lump-sum transfers;

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    References

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    1. Alfred Greiner & Peter Flaschel, 2010. "Public Debt And Public Investment In An Endogenous Growth Model With Real Wage Rigidities," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(1), pages 68-84, 02.
    2. Fincke Bettina & Greiner Alfred, 2011. "Debt Sustainability in Selected Euro Area Countries: Empirical Evidence Estimating Time-Varying Parameters," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 15(3), pages 1-23, May.
    3. Alfred Greiner, 2011. "Sustainability of public debt: Some theoretical considerations," Economics Bulletin, AccessEcon, vol. 31(4), pages 3311-3319.
    4. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
    5. Alfred Greiner, 2011. "Economic Growth, Public Debt and Welfare: Comparing Three Budgetary Rules," German Economic Review, Verein für Socialpolitik, vol. 12(2), pages 205-222, 05.
    6. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
    7. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
    8. Alfred Greiner, 2008. "Does it Pay to Have a Balanced Government Budget?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(3), pages 460-476, September.
    9. Alfred Greiner & Uwe Köller & Willi Semmler, 2007. "Debt sustainability in the European Monetary Union: Theory and empirical evidence for selected countries," Oxford Economic Papers, Oxford University Press, vol. 59(2), pages 194-218, April.
    10. Michael Brauninger, 2005. "The Budget Deficit, Public Debt, and Endogenous Growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 827-840, December.
    11. Futagami, Koichi & Iwaisako, Tatsuro & Ohdoi, Ryoji, 2008. "Debt Policy Rule, Productive Government Spending, And Multiple Growth Paths," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 445-462, September.
    12. Yakita, Akira, 2008. "Sustainability of public debt, public capital formation, and endogenous growth in an overlapping generations setting," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 897-914, April.
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    Cited by:
    1. Noritaka Maebayashi & Takeo Hori & Koichi Futagami, 2012. "Dynamic analysis of reductions in public debt in an endogenous growth model with public capital," Discussion Papers in Economics and Business 12-08-Rev, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Feb 2013.
    2. Ferreira, Joaquim & Pinheiro, Manuel Duarte & Brito, Jorge de, 2013. "Refurbishment decision support tools review—Energy and life cycle as key aspects to sustainable refurbishment projects," Energy Policy, Elsevier, vol. 62(C), pages 1453-1460.

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